Current picture

I wanted to start off with a current sense of the markets are doing, and then discuss possible opportunities. Despite government comments that inflation is not a concern, there have been rising commodity prices since July. I have included charts for the CRB commodity index, showing what raw materials have been doing. Also, you will note charts for gold, which often goes up in a poor market, as investors flee to value. Cotton has also been rising in part to poor weather in India, and additionally, rising demand. Click on any chart for a larger view.

While stock prices rose in early July, they declined  throughout August. Refer to the chart of the S&P 500, which I use as a representation of the overall market, rather than the Dow 30.

Regarding current opportunities, I am looking at Apple (AAPL), Bidu.com (BIDU) and the leveraged ETF's for the Nasdaq and S&P, which are QLD and BGU respectively. The market has risen a great deal since the start of September, so I would be looking for a small pullback as a buying opportunity.

Non-trade

As you can tell, the trade set up in the below post did not happen. This current market is so hot, that the prices just kept powering upward. It will reverse at some point, but any short trades will be for a bar or two to control risk.

Starting again....

It has been far longer than I would have liked, letting this blog sit idle. I don't know why- perhaps I just lost interest for a while. In any case, I am re-motivated to keep at it. Part of my renewed interest is due more in part to re-focusing on my trading, and really staying committed to running it as a business. The blog posts will be more oriented towards trade set ups, macro commentary, and miscellaneous issues that will, I am sure, crop up from time to time.

On to the above chart-

There are 3 trade patterns setting up here, and these are all based on the work of Linda Raschke, from her Street Smarts book, and material from her TAG conference in 1995 on 5 patterns using a modified MACD momentum indicator. These trade set ups on BGZ are-

1. Turtle soup plus one
2. 3 day unfilled gap reversal
3. 10 day divergence (where price makes a lower low and the indicator makes a higher low over a 10 day period)

I have placed a stop limit buy order for BGZ which is a triple leveraged ETF for the what is basically shorting the S&P 500. The order is placed just above Friday's high, indicating a move to fill the gap. If filled, a protective sell stop will be put under Friday's low. Keep in mind that I am a short term trader, unless I see a change in trend coming, such as at the beginning of March of last year. Also note, March 10 of 2009 was a reversal based on the 10 day divergence pattern. Look at a chart of AAPL, and you will see it clearly.

A chart is below-

Count back to the last low on 2/23, and you will see that it is 9 days to the most recent low on 3/9. So, to be correct, we are looking at an 9 day divergence, but this pattern occurs nearly always over a 10 day period.

My market bias right now is bearish, despite the recent strong rally over the past month. There are a lot of reasons for this, that I will not go into on this post, other than to point at the increasing debt levels, and dependence on consumer spending to pull us out of this recession. I am also looking to see if the Dow can rise above the 10725.43 level set on 1/19. This is the 50% level from the 2002 low to the 2007 high. While I will not claim to be an expert in Dow theory, this is a critical resistance level, and I want to see if we can get back above it. Until it does, I will continue to trade 3-5 day price swings and manage risk tightly.

Until next time...